Market Commentary for the Week of September 2nd

This week brings us the release of six pieces of economic data, with two of them considered to be highly important to the markets and mortgage rates. The financial and mortgage markets will be closed Monday in observance of the Labor Day holiday, meaning we will not see new mortgage rates until Tuesday morning.

The first release of the week will come from the Institute for Supply Management (ISM), who will posted their manufacturing index for August at 10:00 AM ET today. This index measures manufacturer sentiment and reported a reading of 57.9, which is higher than the expected reading of 56.9 and slightly higher than July’s reading of 57.1. A reading above 50 indicates manufacturing sector strength because it means that more surveyed manufacturers felt business improved during the month than those who felt it had worsened. A much larger decline in the index would likely cause selling in the stock markets and lead to an improvement in mortgage rates Tuesday as it would hint at manufacturing sector weakness.

Wednesday has three reports set for release that may influence rates. The first is the ADP Employment report before the markets open Wednesday morning, which has the potential to cause some movement in the markets if it shows much stronger or weaker numbers. This report tracks changes in private-sector jobs of the company’s clients that use them for payroll processing. While it does draw attention, it is my opinion that it is overrated and is not a true reflection of the broader employment picture. It also is not very accurate in predicting results of the monthly government report that follows a couple days later. Still, because we sometimes see a noticeable reaction to the report, it is on this week’s calendar.

The second report of the day Wednesday will come from the Commerce Department, who will post July’s Factory Orders data at 10:00 AM ET. This manufacturing sector report is similar to last week’s Durable Goods Orders release, but also includes orders for non-durable goods. It can impact the bond market enough to change mortgage rates if it varies from forecasts by a wide margin. Analysts are forecasting an increase of 11.0% in new orders, meaning manufacturing activity spiked in July do to the whopping increase in airplane orders that drove the Durable Goods report last week. A much smaller increase would be good news for the bond market and mortgage pricing, but I don’t believe we will see too much of a reaction in mortgage rates Wednesday.

And finally, the Federal Reserve will release its Beige Book report at 2:00 PM ET Wednesday. This report details current economic conditions in the U.S. by Federal Reserve regions. It is believed to be a key source of information when the Fed meets for their FOMC meetings and is usually released approximately two weeks prior to each meeting. If it reveals any significant surprises or changes from the previous release, we may see movement in the markets and mortgage pricing as analysts adjust their theories on the Fed’s next monetary policy move.

Thursday’s only relevant monthly or quarterly release is the revised 2nd Quarter Productivity numbers, which measures employee productivity in the workplace. Strong levels of productivity allow the economy to expand without inflation concerns. It is expected to show little change from the previous estimate of a 2.5% increase. Forecasts are currently calling for a 2.6% increase, meaning productivity was slightly better from April through June than previously thought. This would technically be good news for the bond market and mortgage rates, but this data is considered to be only moderately important to the markets. Therefore, it will take a sizable variance from forecasts for this report to affect mortgage rates. Favorable news would be a sizable upward revision in productivity.

The biggest news of the week and arguably the most important that we see monthly comes early Friday morning. The Labor Department will post the unemployment rate, number of new jobs added or lost and average hourly earnings for August at 8:30 AM ET Friday. The ideal scenario for the bond market and mortgage rates is rising unemployment, a drop in payrolls and earnings to fall slightly. Analysts are expecting to see that the unemployment rate slipped 0.1% to 6.1% and that 2200,000 new jobs were added during the month. Weaker than expected readings would signal softer employment sector growth than predicted and would be very good news for bonds and mortgage rates Friday. However, if we get noticeably stronger than expected numbers, mortgage rates and bond yields will probably spike higher Friday.

Overall, this is likely to be a highly active week for the financial markets and mortgage pricing. Friday is the key day with the Employment report but Tuesday could also be one of the more active days due to the ISM report that follows a three-day weekend. We also need to watch the Ukraine crisis as further escalation will likely cause ripples in the world markets and here. With so much important data scheduled and the potential for geopolitical influence, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate and closing in the near future.